Income Tax When Earning Over Age Sixty-Five
Any retirement pensions, including your State Pension, are considered to be sources of taxable income. If the sum total of all your sources of taxable income is over your personal allowance for the year, you will be required to pay income tax at the appropriate rate. Your personal allowance is the amount of income you are entitled to receive each year before you must pay income tax. It is adjusted according to your age. For the tax year 2008/2009 the Income Tax annual personal allowances are:
Basic Rate | £5,435 | no income limit |
Aged 65 – 74 | £9,030 | income limit £21,800 |
Aged 75 + | £9,180 | income limit £21,800 |
If you are over sixty-five you have a more generous personal allowance but you also have an income limit. This means that every £2 of income that you have which exceeds this limit, reduces your more generous personal allowance by £1. If you have a lot of income which exceeds the limit, your personal allowance will be reduced until it is in line with the basic rate allowance. For more detailed information see Income Tax Personal Allowance.
Income exceeding your personal allowance will be charged income tax at the following rates:
Income Tax band | Income Tax rate | Income Tax rate | Income Tax rate |
Starting Rate £1 - £2,230 | 10% | 10% | 10% |
Basic Rate £2,231 - £34,600 | 22% | 20% | 10% |
Higher Rate £34,601 + | 40% | 40% | 32.5% |
If you have a total taxable retirement earned income of £21,000 then you will be charged tax at twenty-two percent, a total of £4,620, leaving you with £16,380. For more information on these tax rates, see Income Tax Rates.
In order to pay your income tax, you will need to contact your local tax office if you are not working, and inform them that you have begun to receive your retirement income. At the end of the year you will be required to fill out a tax return, declaring your income and determining the tax you need to pay. For more information see Paying Income Tax, contact your local tax office, or telephone Her Majesty’s Revenues and Customs on 0845 9000 444 for assistance via their helpline. If you are working, you will usually pay income tax through the Pay As You Earn scheme, or PAYE scheme. For more information, see PAYE Scheme.
